Global Indemnity Group, LLC — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing was signed March 15, 2024. GBLI is a publicly traded partnership for U.S. federal income tax purposes; its Class A shares trade on the NYSE under GBLI.
Business context
GBLI writes specialty property and casualty insurance, primarily in the excess and surplus lines market. In the fourth quarter, it reorganized reporting into Penn-America, its core business, and Non-Core Operations, which comprises de-emphasized or discontinued lines. Comparative segment results were recast. Penn-America’s principal channels are wholesale agents, retail agents, and direct-to-consumer distribution.
Financial results and condition
| Metric | 2023 | 2022 |
|---|---|---|
| Net earned premiums | $473.4 million | $602.5 million |
| Total revenues, including investment income and realized gains/losses | $528.1 million | $628.5 million |
| Net income (loss) | $25.4 million | ($0.9) million |
| Basic / diluted earnings per share | $1.84 / $1.83 | ($0.09) / ($0.09) |
| Net investment income | $55.4 million | $27.6 million |
| Operating cash flow | $42.9 million | $44.2 million |
| Total assets | $1.73 billion | $1.80 billion |
| Shareholders’ equity | $648.8 million | $626.2 million |
| Third-party debt | None | None; $130 million notes redeemed in 2022 |
- The consolidated GAAP combined ratio was 99.7% in 2023 versus 98.8% in 2022. The loss ratio was 61.1% and the expense ratio 38.6%.
- Penn-America reported a 103.6% GAAP combined ratio and an underwriting loss of $11.6 million, including $29.9 million of prior-year reserve strengthening. Its accident-year combined ratio, a non-GAAP measure excluding prior-year adjustments, was 95.2%.
- Non-Core Operations recorded underwriting income of $14.6 million and an 87.9% GAAP combined ratio, including favorable prior-year reserve development.
- Investments totaled $1.35 billion; cash and cash equivalents were $38.0 million. Fixed maturities had a 4.0% embedded book yield and 1.1-year duration. The portfolio had $28.3 million of pretax net unrealized losses, compared with $53.5 million at year-end 2022.
- Net reserves for unpaid losses and loss adjustment expenses were $777.8 million; gross reserves were $850.6 million. Net reinsurance receivables after allowance and collateral were approximately $71.6 million.
- Statutory capital and surplus of the insurance subsidiaries was $402.8 million, and the filing says each insurer exceeded prescribed Company Action Level risk-based capital requirements. Management reported sufficient liquidity to meet needs; insurance subsidiaries paid no dividends in 2023.
Changes versus prior year
- Gross written premiums fell 42.8% to $416.4 million, largely reflecting the runoff and exit of Non-Core business. Penn-America gross written premiums declined 4.7% to $369.7 million; growth in Wholesale Commercial, InsurTech, and Assumed Reinsurance was offset by lower Programs premiums following underwriting changes.
- Non-Core net earned premiums declined 51.1% to $118.8 million. Penn-America net earned premiums decreased 1.4% to $354.5 million.
- Net income improved from a $0.9 million loss to $25.4 million. Higher investment income and the absence of 2022’s $32.9 million net realized investment loss and $3.5 million debt-extinguishment loss contributed to the improvement. 2022 also included $29.9 million of renewal-rights sale income.
- Operating cash flow was broadly steady, down $1.4 million. Equity increased despite share repurchases, partly reflecting improved investment-related other comprehensive income.
Outlook, management commentary, and risks
- The restructuring, completed in the first quarter of 2023, included exiting four brokerage divisions and reducing the workforce by 54 employees. Charges totaled $5.4 million across 2022 and 2023; management anticipates recurring annual expense savings of $16.0 million.
- The Board approved a quarterly distribution increase from $0.25 to $0.35 per common share in March 2024, a 40% increase. Future distributions remain discretionary and depend partly on regulated subsidiaries’ ability to pay dividends. The filing provides no formal earnings or revenue guidance.
- Reserve estimates are a significant judgment area and were identified as the auditor’s critical audit matter. In 2023, prior-year reserve development was unfavorable by $9.5 million overall: $29.9 million of strengthening in Penn-America was partly offset by a $20.3 million release in Non-Core Operations. Management cites higher-than-expected severity in Penn-America general liability, particularly 2018–2022 accident years.
- Other key risks include catastrophe losses, inflation and claim severity, reserve uncertainty, reinsurer collectability, investment interest-rate and credit risk, competition, agent concentration, cybersecurity, and regulatory limits on insurer dividends. The company’s largest disclosed reinsurance receivable was $41.2 million from Munich Re America; the total reinsurance credit-loss allowance was $9.0 million.
- Fox Paine entities held approximately 83.8% of voting power at year-end, and GBLI pays Fox Paine an annual management fee; the current fee for the year beginning September 2023 was $3.2 million. The partnership tax structure can require shareholders to pay tax on allocated income even if distributions are insufficient to cover that tax.
- The company’s insurers carried AM Best financial strength ratings of A (Excellent). The independent auditor gave an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective, with no material weaknesses reported by management.
Important facts for investors to verify
- Whether Penn-America’s underlying underwriting performance sustains its 95.2% accident-year combined ratio, and how reserve development affects reported results.
- The adequacy of the $777.8 million net loss reserve, especially long-tail casualty, construction defect, asbestos, and environmental exposures.
- Reinsurance recoverability, collateral, and the basis for the $9.0 million expected-credit-loss allowance.
- Whether the expected $16.0 million annual restructuring savings are achieved without impairing agent relationships, staffing, or growth.
- How investment income, unrealized bond losses, portfolio credit quality, and limited-partnership liquidity evolve; $14.2 million of limited-partnership funding commitments remained, and the company requested full withdrawal from its $26.0 million Global Debt Fund investment.
- Future capital returns and dividend capacity, including regulatory restrictions and the substantial voting control held by Fox Paine.